COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2015 {COM(2015) 85 final} This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position.
Date: 2015-02-26
Institutions: European Commission
Subjects: Czechia, competitiveness, economic growth, employment statistics, health care system, investment, macroeconomics, tax collection, teaching quality













EUR-Lex - 52015SC0023 - EN











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52015SC0023

COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2015  {COM(2015) 85 final}     This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position. /* SWD/2015/0023 final */









Executive summary  1
1.       Scene
setter: economic situation and outlook  3
2.       Structural
issues 8
2.1.   Taxation,
fiscal sustainability and fiscal framework  9
2.2.   Labour
market, education and skills 15
2.3.   Public
administration  21
2.4.   Business
environment and R&D   23
2.5.   Transport and
energy efficiency  27
AA.   Overview
table  30
AB.   Standard
tables 35
LIST OF Tables
1.1.     Key
economic, financial and social indicators 6
1.2.     Macroeconomic
Imbalance Procedure (MIP) scoreboard indicators 7
AB.1.  Macroeconomic
indicators 35
AB.2.  Financial
market indicators 36
AB.3.  Taxation
indicators 36
AB.4.  Labour market
and social indicators 37
AB.5.  Expenditure on
social protection benefits (% of GDP) 38
AB.6.  Product market
performance and policy indicators 39
AB.7.  Green growth  40
LIST OF Graphs
1.1.     Real GDP
growth and contributions 3
1.2.     Nominal GDP
per capita as a % of the EU average  4
1.3.     Sectoral
contributions to growth of gross fixed capital formation (2005-13) 4
1.4.     Gross fixed
capital formation by the government sector (2004-13) 5
2.1.1.  Implicit tax
rate on labour (2012) 9
2.1.2.  Tax wedge,
single earner at 67 % of average wage (2013) 10
2.2.1.  Employments
rates by age group (EU vs. the Czech Republic) 15
2.2.2.  Unemployment
rates of disadvantaged groups (EU vs. the Czech Republic) 16
2.2.3.  Total
employment of men/women with no children vs. with at least one child (<6
years) 17
2.2.4.  Spending on
education as a % of GDP (EU vs. the Czech Republic) 18
2.2.5.  Teachers'
salaries in lower secondary education (2012) 20
2.3.1.  Worldwide
governance indicators (2013) 21
2.4.1.  Overall
profile of the Czech Republic's business environment 23
2.4.2.  Public and
private R&D investment in the Czech Republic and the EU (% of GDP) 25
2.4.3.  Relationship
between top-cited scientific publications and PCT patents 25
2.5.1.  Investment in
selected activities (as a % GDP) 27
2.5.2.  Determinants
of energy intensity in the Czech Republic  28
LIST OF Boxes
1.1.     Economic surveillance process 5
LIST OF Maps
No table of contents
entries found.
The Czech economy returned to growth in
2014, following two years of contraction, and unemployment has been on a
declining trend. The return to growth has been
largely driven by domestic demand, with investment growing particularly
strongly. Household consumption has also returned to growth, reflecting ongoing
improvements in the labour market. Export and import growth are expected to
have been robust in 2014 and the trade surplus to have grown strongly.
Inflation has remained low, however, despite the Czech National Bank
maintaining an exchange rate floor. In its most recent forecast, the European
Commission projected real GDP growth to have picked up to 2.3 % in 2014 and to
increase somewhat further in 2015 and 2016. This represents an outperformance
compared to the EU average and may give rise to further income convergence, a
process that had stalled since the onset of global financial crisis. The
general government deficit has improved significantly in recent years and is
expected to have reached 1.3 % of GDP in 2014. The debt-to-GDP ratio remains
well below 60 % of GDP.
This Country Report assesses the Czech
Republic's economy against the background of the Commission's Annual Growth
Survey which recommends three main pillars for the EU's economic and social
policy in 2015: investment, structural reforms, and fiscal responsibility. In
line with the Investment Plan for Europe, it also explores ways to maximise the
impact of public resources and unlock private investment. Finally, it assesses
the Czech Republic in the light of the findings of the 2015 Alert Mechanism
Report, in which the Commission found it useful to further examine the
persistence of imbalances or their unwinding. The main observations and
findings of the analysis are:
·       The Czech Republic's public finance outturns have improved markedly,
but some issues remain in the areas of taxation, fiscal sustainability and the
fiscal framework. The country continues to suffer
from a relatively high level of tax evasion, although efforts are being made to
counter this. Tax collection remains costly, both for the authorities and for
taxpayers. The current design of the fiscal framework has not always ensured
sustainable and efficient fiscal outcomes. Projected increases in the pension system
and inefficiencies in the health system and healthcare expenditure pose long-term
sustainability challenges.
·       There is an overall high level of employment but certain
disadvantaged groups remain underrepresented in the labour market. These groups include parents with young children, low-skilled
workers, people with disabilities and Roma. The poor functioning of public
employment services does not facilitate adequate transitions from unemployment
to employment for these groups, while a persistent lack of affordable and
quality childcare services and the limited use of flexible working-time
arrangements limit the ability of mothers with young children to remain on the
labour market. 
·       Educational outcomes have been improving in recent years but some
disparities remain. The Czech schooling system
still features disparities in schooling outcomes between regions and social
groups, low participation in early childhood education and care, and low
attractiveness of the teaching profession. Tertiary and vocational education
programmes do not respond adequately to labour market needs. 
·       The weak efficiency and transparency of public institutions in the
Czech Republic remain a barrier to more robust investment and growth. The Czech Republic scores poorly on international rankings of the
quality of public-sector institutions, in particular as regards corruption.
Public procurement procedures are not sufficiently transparent. At the same
time, the absorption of EU funds has improved. 
·       Despite recent improvements, inefficiencies in the business
environment still hold back competitiveness of the Czech economy. Weaknesses in the business environment are reflected in the Czech
Republic's poor rankings in various international classifications. The number
of regulated professions has fallen only moderately in recent years. 
·       While public investment has increased recently, transport
infrastructure remains relatively underdeveloped and there is scope to further
improve energy efficiency. Suboptimal transport
infrastructure increases export costs, reduces aggregate cost effectiveness and
acts as a disincentive to private-sector investment. Inefficiencies in the
implementation of infrastructural investment reduce the ability of responsible
bodies to fully absorb available funds, including EU funds.  There is potential
to further improve energy efficiency, which could strengthen the economy's
competitiveness and simulate private-sector investment.
Overall, the Czech Republic has made
limited progress on addressing the 2014 country-specific recommendations. This includes recommendations to: reduce taxation on labour; reform
the pension and healthcare systems; increase the inclusiveness and quality of
education; accelerate the reform of regulated professions; set up an effective
research and innovation system; and reinforce the fight against corruption.
However, there has been some progress in the following areas: increasing
growth-enhancing investment, improving tax compliance; strengthening the fiscal
framework; improving energy efficiency; developing public employment services;
and improving the management of EU funds. The adoption of the Act on Child
Groups is a positive step towards improving the labour market participation of
mothers with young children. The adoption of the Civil Service Act also
represents some progress on the recommendation to improve public administration.

The country report also reveals challenges
stemming from the analysis, notably: 
·       Completing the income convergence process vis-à-vis the EU can only
be achieved by increasing the potential of the economy, primarily by fostering
knowledge-based growth. Maintaining the pace of
this convergence is made more difficult by the fact that income levels in the
Czech Republic are already high in comparison to regional peers. Improvements
in educational outcomes and increased investment in R&D in recent years
suggest that the Czech Republic has started to exploit its potential in human
capital. However, investment in both of these sectors is still below the EU
average and indicators suggest that results from the research and innovation
system remain weak.
·       A number of factors limit the short-term growth potential of the
economy. Inefficiencies in the implementation of
investment projects, particularly in the area of transport infrastructure, and
suboptimal energy efficiency reduce the contribution to growth from investment.
Inefficient public administration and tax collection are detrimental to the
aggregate cost-effectiveness of the economy, as are supply-side constraints
such as barriers to employment for disadvantaged groups and the high number of
regulated professions.
Macroeconomic developments
The Czech economy returned to growth in
2014, following two years of contraction. The
turnaround was largely driven by domestic demand. Latest available data show
strong growth in investment activity, which had contracted significantly in the
previous two years. Public investment growth is likely to have been
particularly strong, with a renewed effort by the authorities to absorb
available EU funds. Household consumption is also expected to have contributed
positively to growth in 2014. According to the Commission winter 2015 forecast,
GDP growth is set to have reached 2.3 % in 2014, compared to an EU average of
1.3 %. 
 Graph 1.1:     Real GDP growth and contributions 
 Source: European Commission, Eurostat and Commission winter 2015 forecast 
Export growth was robust during the
first three quarters of 2014 and import growth was equally strong. This was due to rising domestic demand and the high
import-intensity of the export sector and of investment activity. The trade
surplus is expected to have grown strongly for the year, however, due to
favourable price effects that were partly related to the substantial fall in
oil prices towards the end of 2014.
Inflation has remained at very low
levels. The Harmonised Index of Consumer Prices
(HICP) inflation rate averaged just 0.4 % in 2014, partly due to decreases in
regulated prices at the start of the year and falling oil prices in its final
few months. The Czech National Bank recently announced that it will continue to
pursue a loose monetary policy and will maintain an exchange rate floor until
at least the second half of 2016. 
Real GDP growth is expected to
strengthen further in 2015 and 2016, although developments in the external
environment might have a negative effect. In the
winter 2015 forecast, the Commission projected GDP growth of 2.5 % and 2.6 % in
2015 and 2016, respectively. Domestic demand is expected to remain the main
driver of growth, with robust growth in investment and household consumption.
The trade surplus should widen further in 2015, particularly due to the fall in
oil prices. This factor is also expected to keep inflation at very low levels. 
The return to growth may have given rise
to renewed income convergence vis-à-vis the EU, a process which had halted in
recent years. While income levels are already high
in comparison to regional peers (Graph 1.2.), the convergence process had stalled,
partly due to the impact of the global slowdown. Regional peers continued to
close the income gap during this period, however. The Commission winter 2015
forecast suggests that the income convergence process may have restarted in
2014 and is expected to continue over the next 2 years. However, these growth
outcomes partly reflect monetary and fiscal loosening. Moreover public and (to
a certain extent) private investment are being temporarily boosted by an
expected increase in the absorption of EU funds. Implementing appropriate
structural reforms that place an emphasis on knowledge-based growth would help
exploit the momentum of the current recovery and increase potential growth.
Investment
There was a sharp contraction in
investment in 2009 and growth rates have been weak since then. The initial contraction in investment was largely due to the
corporate sector (Graph 1.3), although the general government and
household sectors generally contributed negatively in the following period.
Investment by the corporate sector in the Czech Republic is sensitive to
economic developments in trading partners, particularly in the EU. While
further growth is projected for 2015 and 2016, weakness in EU growth might have
a negative effect. The household sector contributed negatively to growth in the
period 2011-13 due to deleveraging. Available data for 2014 point to a return
to positive growth across sectors and the winter 2015 projects further growth
in 2015 and 2016.
 Graph 1.2:     Nominal GDP per capita as a % of the EU average 
 (1) Adjusted for Purchasing Power Parity. Source: European Commission - Eurostat 
Public investment fell quite sharply
during the period 2010-13 (Graph 1.4) but is estimated to have increased
in 2014. Investment in transport infrastructure
fell particularly sharply during this period, although it is likely to have
contributed quite strongly to the increase in 2014. There has also been a
reduction in the absorption of available funds by implementing institutions in
recent years, due partly to various bottlenecks in the planning and
implementation of transport infrastructure investment projects. The Czech
Republic has had a lower reduction of primary energy consumption since 2000,
compared to the EU average, pointing to a need for investment to support energy
efficiency. Public investment in research and development (R&D) has
increased quite substantially in recent years but this is not reflected in
better outcomes, such as the proportion of articles written by Czech authors
appearing in top-cited publications. Although the Czech Republic is likely to
surpass its Europe 2020 target on R&D investment, this only relates to
public R&D investment and neglects the important role of private investment
in this area.
 Graph 1.3:     Sectoral contributions to growth of gross fixed capital formation (2005-13) 
 Source: European Commission - Eurostat 
Labour market and skills
The labour market has continued to
improve, with unemployment falling back towards its long-term average. The unemployment rate fell to an average of 6.1 % in 2014,
compared to 7.0 % in 2013. The unemployment rate is expected to remain close to
its long-term average of around 6 % over the next two years. The Czech Republic
has a high level of employment and long-term unemployment is low compared to
the EU average. Certain groups, such as women with young children, the young,
people with disabilities and Roma, are underrepresented in the labour market,
however. Access to childcare facilities is far below the EU average and there
is relatively low use of flexible working arrangements, limiting the ability of
women with children to participate in the labour market. There are wide gender
gaps in employment and pay.
Education outcomes have improved in
recent years but there are concerns that tertiary and vocational education
training courses do not sufficiently respond to labour market needs. Public expenditure on education (as a percentage of GDP) has
increased in recent years but it remains below the EU average. Inequalities in
education hamper educational and labour market outcomes for those with low
socio-economic backgrounds. Certain groups are marginalised, with Roma children
constituting nearly a third of children educated based on a revised curriculum
for pupils with mild mental disabilities. Participation in tertiary education
has increased significantly but there are concerns about course quality and
labour-market relevance. 
 Graph 1.4:     Gross fixed capital formation by the government sector (2004-13) 
 Source: European Commission - Eurostat 
Public finances
The general government deficit has
improved significantly since 2009 and the Czech public finances do not appear
to face sustainability risks in the short term.  The
deficit reached 1.3 % of GDP in 2013, with increases in indirect taxation and
sharp cutbacks in public investment contributing significantly to this outcome.
According to the Commission winter 2015 forecast, the deficit is set to remain
broadly unchanged in 2014 but to increase to 2% in 2015. This is mainly due to
stronger investment activity and higher expenditure in areas such as healthcare
and pensions, coupled with several revenue-decreasing measures. The general
government deficit is expected to improve to 1.5 %, in 2016 as a result of an
improved macroeconomic environment. The debt-to-GDP ratio remains well below
60% and does not pose any significant risks to fiscal sustainability in the
short term. There are nevertheless several weaknesses in the taxation system
and in the fiscal framework. Inefficiencies in tax collection and widespread
tax evasion have a negative impact on the business environment and reduce
sources of public revenue, and the tax structure is not sufficiently supportive
of growth and employment of the most vulnerable groups. Finally, the current
design of the fiscal framework has not always ensured efficient fiscal policy. 
The long-term sustainability of public
finances remains an issue for the Czech Republic, although some improvement is
expected due to a revised demographic outlook.
Population ageing is expected to cause increases in both pension- and
healthcare spending in the long term. The pension system is currently
relatively successful in preventing old-age poverty, although such poverty is
much more prevalent among women than men.
 Table 1.1:       Key economic, financial and social indicators 
 Source: European Commission; ECB 
 Table 1.2:       Macroeconomic Imbalance Procedure (MIP) scoreboard indicators 
 Source: European Commission 
Taxation
Tax evasion is widespread in the Czech
Republic, particularly in the areas of VAT and excise duties, but a number of
preventive meaures are currently being implemented. 
According to a recently published study ([1]), the VAT compliance gap in the Czech Republic increased from 17 %
in 2011 to 22 % in 2012 and was significantly above the EU-26 (all EU Member
States except for Cyprus and Croatia) average of 16 %. The Czech authorities
have identified tax compliance and the fight against tax evasion as one of
their key priorities and are stepping up work in this area. A task force of tax
administration, customs and police officers was set up in June 2014 and
strengthened cooperation between these bodies. Several measures were introduced
in 2015 to tackle tax evasion in the area of VAT, including extension of the
reverse-charge mechanism to more goods and services and a broader definition of
the ʻunreliable taxpayerʼ status. As for direct taxes, a new
reporting obligation for entities participating in transactions with related
parties was introduced. This information will be used to assess risks related
to taxpayers and decide whether to conduct a tax audit. Additional measures to
tackle underreporting of income and VAT fraud are planned for 2016, notably
electronic reporting of sales for VAT and income tax purposes and a central
registry of bank accounts. Although assessing the effectiveness of these
measures is not possible at this stage, they have the potential to contribute
to better tax collection and to reduce tax fraud. 
Tax collection remains very costly and
burdensome both for the tax administration ([2]) and for tax payers. The Czech Republic
has the second highest costs of paying taxes in the EU (more than double the EU
average). Recent data from the 2015 Paying Taxes Report ([3]) do not show any reduction in the time required for companies to
file tax returns compared to the previous year. Use of digital tax declarations
remains very low despite some recent improvement. There is very little use of
pre-filling of tax returns, which makes tax filing time-consuming for
individual tax payers. Harmonisation of tax bases for personal income tax,
social security and health contributions, which would help simplify the tax
system, has not been achieved, although there are plans to tackle the issue
again. Work on simplifying tax returns and increasing the use of pre-filling is
not carried out in a systematic way. Similarly, there has been no significant
effort to simplify the VAT system. On the contrary, the Czech Republic
introduced a second reduced VAT rate of 10 % applicable to a selected group of
goods. 
Tax revenue in the Czech Republic still
relies heavily on taxation of labour income. Social
security contributions are the highest in the EU and represent nearly half of
all tax revenues while the rate of personal income tax is significantly lower
than the EU average. The implicit tax rate on labour was in 2012 the second
highest in the EU-10 region and 1 pp higher than in Germany (see Graph 2.1.1). 
 Graph 2.1.1:   Implicit tax rate on labour (2012) 
   
 Source: European Commission 
Low-income workers, particularly those
without children, face a relatively high labour tax burden. The tax wedge on labour for a single worker earning 50 % of the
average wage amounts to 36.2 % and is above the EU average, which itself is
considered high and an impediment to growth and employment. At 67 % of the
average wage, the tax wedge on labour amounts to 39.3 %, which is again higher
than the EU average and higher than in some of regional peers, such as Poland
or Slovakia (see Graph 2.1.2). Low-income workers and second
earners also face high inactivity traps ([4]) but this is mainly due to the withdrawal of benefits, as the
contribution of labour taxation is low. The concept of inactivity traps does
not, however, take into account employers' social security contributions, which
are particularly high in the Czech Republic. High-income groups, on the other
hand, face a low tax burden compared to EU standards. 
 Graph 2.1.2:   Tax wedge, single earner at 67 % of average wage (2013) 
 (1) EU27: simple EU average excluding Cyprus Source: European Commission 
High labour taxation may contribute to
an unfavourable labour market situation of the low-skilled. While the labour market situation is generally rather favourable
compared with that of many other EU countries, the employment rate of the
low-skilled is significantly below the EU average ([5]) and their unemployment rate is more than three times higher than
the overall unemployment rate. High social security contributions may have a
negative impact on labour demand and a particularly discouraging effect for the
young low-skilled and the low-skilled over the age of 55, who typically do not
benefit from tax relief for families with children. These two groups also
record remarkably low employment rates compared with the EU average. The
employment rate of the low-skilled aged 15-24 reached 6.4 % in the third
quarter of 2014 (EU average 19.2 %). The employment rate of  the low-skilled
over the age of 55 reached 30.6 % in the third quarter of 2014 (EU average 38.5
%).  
Measures entering into force in 2015
will somewhat reduce labour taxation for specific groups but will have a limited
impact overall. Taxation of working pensioners and
families with two or more children will decrease somewhat in 2015 as a result
of the introduction of tax credits for these two groups. An expert group has
been set up to propose further changes to personal income tax. Reform of this
tax, which is currently planned for 2016, should be deficit-neutral but no
details on specific measures are currently known. Discrepancies in tax
treatment between employees and the self-employed are expected to narrow somewhat
this year after the introduction of a ceiling for flat-rate expense deductions
for several categories of the self-employed. Some of the envisaged tax
compliance measures tackle the issue of underreporting of income by the
self-employed but the difference between the two groups remains large. 
While consumption taxes have increased
several times in recent years, property and environmental taxes (except fuel)
remain low. The scope to further increase in
consumption taxes is limited as VAT rates and excise duties have been raised
several times in the past four years. The implicit tax on consumption stood at
22.5 % in 2012, well above the EU average of 19.9 %. Property taxes are
currently the fourth lowest in the EU and they are not sufficiently linked to the
real value of property. Although the ratio of environmental tax to GDP is
comparable with the EU average (2.4 % of GDP), pollution and resource taxes are
very low (0.02 % of GDP), which does not provide sufficient incentives for
environmentally-friendly behaviour, especially in waste management (this
concerns in particular the landfill tax and introduction of the incineration
tax). Concerning other sources of less distortive tax revenue, the Czech
authorities have increased excise duties on tobacco in line with EU
requirements and plan to increase tax on gambling. On the other hand, plans to
reduce VAT rates for specific products go against the idea of shifting the tax
burden towards less distortive taxes.
Fiscal
sustainability
Long-term sustainability remains a
challenge for the Czech Republic's public finances, although some improvement
in the outlook is expected. Based on the long-term
sustainability gap indicator (S2 indicator) ([6]), the Czech Republic was identified as a high-risk country until
2011 and then as a medium-risk country (2012-14). The projected increase in
pension and healthcare expenditure due to population ageing in the long term
contributed to this result. It is expected that in the upcoming revised
projections (to be published in the course of 2015), the Czech Republic's
outlook with respect to long-term sustainability will improve, mainly due to a
better demographic outlook and improved macroeconomic assumptions ([7]). The old-age dependency ratio continues to increase sharply,
although the increase may be less pronounced than previously expected.
The statutory retirement age in the
Czech Republic is increasing relatively slowly in the medium term, given its
very low starting point. Although the statutory
retirement age for men is set to reach 65 by 2020 in most Member States, in the
Czech Republic it is expected to reach only 63 years and 8 months. It is
expected to remain below the EU (population-weighted) average in 2030. The
statutory retirement age for women is rising faster but, due to a low starting
point, it is projected to remain significantly below 65 for women with three or
more children. The Czech authorities do not plan any changes in this area. 
Increases in the statutory retirement
age don't currently have a predefined age limit, although a proposal to
introduce a link to life expectancy is under discussion. In December 2014, the Expert Committee on Pension Reform adopted a
review mechanism that links the statutory retirement age to life expectancy.
The envisaged link would be subject to government (or parliamentary) approval
once every five years, when a review would be conducted based on an expert
report. The proposed system would broadly confirm the increases in the
statutory retirement age as currently legislated until around 2055, when the
share of life spent in retirement is expected to fall below 25 %, according to
current projections. Despite not being fully automatic, the proposed system is
an improvement compared to currently legislated increases, which do not shield the
pension system from unexpected changes in life expectancy. It is nevertheless
important that the long-term sustainability of public finances is sufficiently
taken into account in this and in any other pension reform proposals.   
With the prospect of a rising statutory
retirement age, increasing employability of older workers will become an
important element of ensuring long-term sustainability of the pension system. The employment rate of workers above 55 reached 54.7 % in the third
quarter of 2014 (an improvement of 2.5 pps. compared to the same period of the
previous year) and is higher than the EU average of 52.4 %. There is, however,
a significant difference between the employment rate of older women and that of
men. Measures implemented in 2014, such as a pilot project aimed at
intergenerational exchange of work experience and an increase in employers'
subsidies for hiring older workers, go in the right direction. 
A discretionary increase of pensions in
2015 was approved but the basic pension indexation formula has not been
revised. The temporarily lower indexation of
pensions was implemented in 2013 and 2014 for fiscal consolidation reasons. The
2015 budget envisages an extraordinary increase of 1.8 %. The standard formula,
which limits pension indexation to the aggregate consumer price index and one
third of the real wage increase, will be applied thereafter. The Expert
Committee is currently discussing different possibilities of changing the
pension indexation formula but no concrete recommendation has been issued as
yet.
Stability of the pension system has been
hampered by abrupt changes to the second pension pillar. The second pension pillar was introduced in 2013 and will be
dismantled in 2016. Lack of broad political support from the onset created
considerable uncertainty and resulted in very low participation, which
curtailed the aim of diversifying the pension system and providing a viable
complement to the pay-as-you-go system.  Contributions to the fully-funded
pillar will be either returned to the participants in cash or transferred to
the existing voluntary third pension pillar. Discussions on possible ways of
reinforcing the third pension pillar are currently ongoing.
With long-term projections indicating an
increase in healthcare expenditure, the Czech Republic faces challenges in
terms of improving cost-effectiveness and governance in the healthcare sector,
particularly as regards hospital care. Population
health status indicators for the Czech Republic are at a comparable level with
those for the rest of the EU, despite the Czech healthcare budget being below
the EU average. The healthcare budget is expected to come under pressure in the
medium- to long term due to population ageing. Such pressure could be somewhat
eased by addressing existing cost inefficiencies in the healthcare sector,
which are largely due to misdirected incentives. For example, hospital
outpatient consultations per capita are among the highest reported in the EU ([8]), pointing to ineffective screening by general practitioners ([9]). The number of one-day cases in hospitals also seems to be very
low by international standards, potentially signalling cost-inefficient
treatment ([10]). Governance
and a lack of transparency are also weaknesses of the Czech healthcare system.
Increased transparency could be achieved through complete disclosure of service
delivery contracts between insurers and healthcare providers. This would also
foster competition between providers and drive the costs of services down.
Healthcare-specific public procurement using EU funds suffers from recurrent
irregularities, signalling deficiencies of guidance and supervision in this
area ([11]). A lack of
data and difficulties in accessing existing data on the inpatient sector
impedes the further roll-out and effective use of the reimbursement system ([12]), which was introduced in order to efficiently allocate resources
across hospitals in line with clinical activities. 
Measures are being taken to improve the
cost efficiency and governance of the healthcare sector, although many of them
are still under preparation. An Instruments
Commission was set up in early 2014 to strengthen needs-based principles in
the planning process and operation of medical equipment. In early 2015, the
government decided to adopt measures aimed at fostering transparency in service
delivery contracts between insurers and healthcare providers, as well as
promoting competition among providers. With a view to reforming the hospital
sector, the project Diagnosis-related groups (DRG) Restart was started
in January 2015, with the aim of addressing shortcomings in the current
hospital funding scheme. Still, the number of hospitals reporting interventions
(including their costs) is too narrow to set an optimal price that would
optimise the use of resources. Measures to cap overheads margins for insurers
and to improve the risk-adjusted allocation of resources to insurers are
planned for 2015. However, most announced measures referred to above are still
at an initial stage of development. Furthermore, the suppression of inpatient
fees from 2014 seems to have resulted in increased recourse to hospital care
and the same effect can be expected in the outpatient sector, where fees were
supressed at the start of 2015. 
Fiscal
framework
The current fiscal framework is
relatively weak, compared to EU standards. The main
elements, such as a numerical fiscal rule and medium-term budgetary planning,
are in place but their scope is limited and enforcement has been weak. The
standardised fiscal rules index ([13]) shows that the Czech Republic has the 5th weakest
fiscal rules in the EU, and scores particularly low on monitoring and
enforcement. The main weakness of the medium-term budgetary framework is the
insufficient involvement of sub-national levels of government in setting the
budgetary targets and the medium-term strategy. Despite recent improvements,
the budgetary process and, in particular, budgetary documentation still lacks
transparency and focus. Expenditure is mostly budgeted on an incremental basis
without a clear link to the declared policy priorities. The Czech Republic is
one of the few Member States that have not yet set up an independent fiscal
institution charged with the monitoring of fiscal rules. 
A comprehensive reform tackling the main
weaknesses of the current fiscal framework is underway. The draft reform package has been modified and delayed several
times and its adoption is currently planned for 2015. The package is also meant
to belatedly transpose into national legislation crucial elements of the
Council Directive 2011/85/EU on budgetary frameworks. Its key elements include
a modified expenditure rule that is consistent with the medium-term objective,
introduction of a debt rule for the general government as a whole as well as
separately for local governments, establishment of an independent fiscal
council and provisions to improve transparency and fiscal data reporting.
Although a comprehensive assessment of the reform is not possible at this
stage, experience with the current fiscal framework has shown that appropriate
enforcement will be crucial for its successful implementation. 
Labour market 
The Czech Republic's labour market
situation improved in 2014, in line with a return to GDP growth following two
consecutive years of decreases. The employment rate
(people aged 20-64) has been increasing and reached 73.9 % in the third quarter
of 2014 (Graph 2.2.1), while the total unemployment rate
fell to an average of 6.1 % in 2014 (Graph 2.2.2). Indicators for disadvantaged groups
also showed improvement between the third quarters of 2013 and 2014, with youth
unemployment (people aged 15-24) falling from 19.6 % to 16.3 %, the unemployment
of non-qualified workers from 23.9 % to 21.2 % and long-term unemployment from
3.0 % to 2.6 %. The latter figure remains among the lowest in the EU. The
unemployment rate of women is also falling, reaching 7.4 % in 2014, although it
remains higher than that of men (5.1 % in 2014). Poverty and social exclusion
remain among the lowest in the EU but the number of socially excluded
localities inhabited mainly by Roma has increased in recent years, as has the
risk of housing exclusion and the number of homeless people.
There are two
major challenges related to the low labour market participation of certain
groups. Firstly, poorly functioning active labour
market policies do not ensure adequate transitions from unemployment to
employment. Secondly, there are barriers to higher female labour-market
participation.
Effectiveness
of public employment
services and active labour market policies
The poor functioning of public
employment services (PES) does not facilitate enough transitions from
unemployment to employment for disadvantaged groups. PES reforms carried out since 2011 have not yet produced the
expected results. An ineffective management system prevents the efficient
translation of objectives into activities, and a lack of operational autonomy
of PES hampers market-oriented interventions and consistent service delivery
across regions. Competences and objectives between various institutional layers
are not clearly defined. Implementation of effective activation strategies is
hampered by insufficient scope and spending on active labour market policies
(ALMPs) and the provision of tailored services such as job search assistance or
career counselling is limited. The sustainability of measures is often not
ensured and the evaluation of their effectiveness is not carried out regularly.
There are persistent problems related to an obsolete data-processing IT system
for registration of jobseekers and administration of benefits.
 Graph 2.2.1:   Employments rates by age group (EU vs. the Czech Republic) 
 Source: European Commission - Eurostat 
Although some steps have been taken
towards strengthening the efficiency and effectiveness of PES in recent years,
an effective performance measurement system is still lacking. ALMPs have been cited as a priority for the current governmental
coalition and key strategic documents have been adopted to address shortcomings
and help better integrate EU-funded and national ALMP measures ([14]). There has been an increase in PES personnel capacity ([15]), an increase in expenditure, and the implementation of new
instruments and projects. The scope and number of participants in ALMP is
increasing. This is true in particular for job creation measures, including on-the-job
experience for young people. The number of participants in public works,
retraining and subsidised jobs has increased and the annual change in the
number of jobseekers benefitting from ALMP measures was nearly 50 % by October
2014 ([16]).
Difficulties linked to the inefficiency of the data processing system continue
to hinder the development of a more effective design of ALMPs, however, and
suboptimal data gathering and processing, and a lack of consistent measure
evaluation, become more problematic as spending increases.
The trend in youth employment is
positive and PES try to place an emphasis on young people in their
interventions. A number of steps have been taken in
2014 under the Youth Guarantee, including the provision of Youth Guarantee
offers, the approval of a new youth strategy, the first steps towards the
introduction of a dual system in vocational education and training, the
launching of traineeship programmes, and a programme that aims to improve human
resource management and build staff capacity in PES. Several major challenges
remain, however, including the effectiveness of PES in terms of activating
labour market participation of young unemployed workers and offering them
individualised and targeted services. Those furthest from the labour
market, i.e. non-registered NEETs ([17]), are excluded from the Youth Guarantee. Overall, largely due to
the relatively good situation of young people on the Czech labour market, there
is a visible lack of an ambitious, comprehensive and long-term approach, which
raises questions regarding long-term sustainability of measures.
 Graph 2.2.2:   Unemployment rates of disadvantaged groups (EU vs. the Czech Republic) 
 Source: European Commission - Eurostat 
Labour market
participation of women
A lack of affordable childcare services
and the limited use of flexible working-time arrangements limit the ability of
women with children to participate in the labour market. The employment rate of women remains significantly lower than that
of men, although it is close to the EU average. The average duration of women's
working lives has increased but remains below the EU average. Access to
childcare facilities remains among the lowest in Europe, with only 3 % of
children up to 3 years of age cared for in formal childcare, far below the EU
average of 28 % (2012). Nurseries for children aged 0-2 are very scarce and are
mainly private, with public nurseries no longer recognised as legal entities
since a legislative amendment introduced in 2013. The considerable number of
women on parental leave or benefiting from the parental allowance (up to the 4th
year of the child's life) seems to 'conceal' hidden unemployment of women.
According to the results of a study prepared for the European Commission ([18]), more than 13 % of 35-year-old college-educated mothers on
parental leave with children up to 4 years old would like to work if they had
an opportunity to do so. Moreover, 16 % of mothers with young children indicate
that their decision not to work is strongly influenced by the lack of childcare
services. A low level of part-time working is another obstacle to employment:
in 2013, part-time work accounted for only 5.8 % of employment (10 % in the
case of women and 2.5 % in the case of men).
 Graph 2.2.3:   Total employment of men/women with no children vs. with at least one child (<6 years) 
 Source: European Commission - Eurostat 
Some steps have been made towards
increasing the availability of childcare facilities, with the Act on Child
Groups being adopted in 2014. Under this
legislation, any legal entity can provide childcare in groups of up to 24
children (of at least 1 year of age). In the case of children of 3 years and
older, some professional standards are required. The expenditure on company
childcare facilities has also been made tax-deductible, and tax relief has been
granted to parents who use the services of child groups. The act should result
in an increase in childcare services, although stakeholders have raised
concerns about its potentially negative impact on some types of existing
alternative childcare facilities. It will only be possible to evaluate the
act's overall impact after some time. The government has also promised to
increase the capacity of public kindergartens. A new initiative was announced
to establish a government fund that will support new public facilities
providing early childhood education and care. This fund will disburse CZK 1.5
billion for the 2014-21 period and CZK 12 billion for the 2015-23 period,
planned to be drawn from EU funds.
Policies supporting public childcare for
the youngest children, which would help mothers to return to employment after
having a child, are still lacking. Political
inaction in tackling this problem continues, with no administrative body having
the sole competence for nurseries. 
A high gender-employment gap (16.8 pps.
in the third quarter of 2014) shows a high level of gender inequality. The female employment rate has not changed significantly over the
last few years and is firmly linked to age and care for a child or other
dependents. Overall, womens' labour inactivity due to family responsibilities
is very high (25.4 % in 2013 compared to an EU average of 15.1 %). OECD
projections show that the size of the labour force would increase by 5.1 % by
2030 if there was a convergence of the labour market participation of women and
men, while it would decrease by almost 10 % in comparison to 2011 if no change
occurs ([19]). Gender
inequalities are visible also in other aspects of the labour market. Women
remain disadvantaged in financial terms, with the gender pay gap remaining
among the highest in the EU (22 % in 2012 compared to 16.5 % in the EU) and
there are few policy initiatives to tackle this problem. According to the World
Economic Forum's Global Gender Gap Report, the Czech Republic fell from 83rd
place in 2013 to 96th in 2014, due to its very low female-to-male ratio for
legislators, senior officials and managers, as well as the political
empowerment of women. The European Institute for Gender Equality evaluates the
country as being below the EU average (54 points) with only 44.4 points on the
Gender Equality Index ([20]).
The newly adopted Strategy on Gender
Equality (2014-20) is expected to have a positive impact on gender balance on
the labour market. The strategy provides a
comprehensive framework for a broad gender equality agenda, which was until now
pursued with only piecemeal measures that were approved annually. It correctly
identifies key gender challenges, such as the low representation of women in
politics and top-level public administration positions, the extreme drop in
employment resulting from motherhood, and the low level of women in R&D
positions despite education levels (masters and PhD courses). The strategy
includes ambitious goals, such as improving the gender balance in private and
public entities to reach 40 % of women in decision-making positions and to
decrease the gender pay gap to the EU average level by 2020. It also plans to
contribute to improving the position of women on the labour market through
improvements in flexibility of working arrangements, parental leave
possibilities and childcare provision. In 2015, an increase in the usage of
flexible working arrangements in public entities is envisaged and a public
campaign on private/public life reconciliation and domestic and gender-based
violence is planned. 
Education and skills 
The Czech Republic has a generally high
level of educational attainment and educational outcomes have improved in
recent years. The most recent data show that the
Czech Republic is performing well in indicators such as early school leaving
(5.4 % in 2013 compared to an EU average of 12 %) ([21]) and is showing rapid progress in tertiary educational attainment. 
Structural challenges still remain,
however, with public expenditure on education remaining below the EU average (Graph
2.2.4).
Demographic developments have put pressure on capacity, in particular in early
childhood education and care and the early stages of primary education. The
teaching population is ageing and the profession's attractiveness is low. The
added value of schooling in relation to socio-economic background is one of the
lowest in the EU ([22]). Early
tracking at the age of 11 continues, despite its negative impact on students
assigned to lower tracks and a lack of evidence that it increases average
performance (OECD, 2012). Regional disparities on indicators such as early
school leaving and skills mismatches are high ([23]).
 Graph 2.2.4:   Spending on education as a % of GDP (EU vs. the Czech Republic) 
 Source: European Commission - Eurostat 
Compulsory
education
A high proportion of the population
completes primary and secondary education but inequalities impede educational
and labour market outcomes for young people with low socio-economic
backgrounds, including Roma, and thus hold back inclusive growth. The early school-leaving rate remains low in the Czech Republic but
is much higher for certain disadvantaged groups, such as Roma children (72 %) ([24]) and people with disabilities (11.2 %) ([25]). The labour market disadvantage for early school leavers is higher
than the EU average ([26]). The
participation of Roma children in early childhood education and care remains
very low (26 %) ([27]), despite the
legal entitlement to a place in the final year. Furthermore, Roma children
constitute about a third of pupils educated based on the revised curriculum for
pupils with mild mental disabilities ([28]). The government has adopted a comprehensive strategy for education
(until 2020), which focuses on reducing inequalities, and some pro-inclusive
amendments to the School Education Act are planned to enter into force in 2016.
They include a proposal for individual support to pupils with special education
needs in mainstream education, including those from disadvantaged backgrounds,
and could therefore improve the education of Roma children. It is still not
clear if any provisions that could lead to potential misdiagnosis of children
and their placement in practical schools will remain. The current funding
system([29]), together
with insufficient control over diagnosis, may impede efforts towards reducing
misplacements. Extending compulsory education to the last year of pre-school,
which would better prepare disadvantaged children for education in mainstream
schools, is being considered from 2016. New funding from national and EU
sources aimed at increasing capacities in pre-primary schools has been agreed
with the objective of offering sufficient capacity within three years. It is
also planned that qualification requirements for pre-primary teachers will be
raised. 
A comprehensive evaluation framework and
support for low-performing schools and pupils, which could help improve
efficiency and equality in the education sector, is lacking. The Czech School Inspectorate, with the support of EU funds, has
developed a testing platform for schools, teachers and pupils at grades 5 and
9. Minimum education standards have been developed for certain topics and
further standards are being developed to provide schools and teachers with
clearer guidance on the reformed curricula. A common entry exam to
upper-secondary schools leading to the State Leaving Exam will be pilot-tested
in 2015, although this is a controversial measure as it may lead to a reduction
in equity. However, measures to support teacher assessment practices and
formative assessment are lacking. Envisaged financial incentives for teachers
working in challenging schools or classes could bring positive results.
Demographic projections point to a need
to increase the number of teachers in the compulsory education sector in order
to maintain the current student-teacher ratio, but low salaries and a negative
perception of the profession make it difficult to attract talented candidates. There is also evidence of a strong gender imbalance in the teaching
profession ([30]). While the
salaries of public employees were increased by 3.5 % for 2015 (from November
2014), teachers' salaries are still not high enough to compete with the average
salaries in other professions requiring similar levels of education. Work
towards a new career system for teachers and headmasters has continued,
supported by EU funds. It will combine career development and standards-based
career progression with performance assessment, continuous professional
development and better remuneration. The finalisation of the new system is
planned for the first half of 2015 with an envisaged entry into force in
September 2016. The new career system is likely to bring clarity in terms of
required competences for teachers, educational staff and headmasters, thus
improving recruitment and professional development and contributing to reducing
the high proportion of young teachers who leave the profession. The overall
impact will largely depend on available funding, the level of which remains
unclear at this stage. While the ICT infrastructure in schools is relatively
well developed and Czech pupils score well in ICT literacy([31]), there is a shortage of ICT professionals and teacher training in
the area is lagging behind.
 Graph 2.2.5:   Teachers' salaries in lower secondary education (2012) 
 (1) Unit is USD converted using Purchasing Power Standards. Source: OECD 
Higher
education
Participation in tertiary education has
rapidly increased but concerns have emerged over its quality and labour-market
relevance. The recent OECD survey on adult skills ([32]) highlighted a decline in younger tertiary education graduates’
skills compared to older generations with equivalent diplomas, while the
employment advantage for graduates has decreased recently and is below the EU
average ([33]). Draft
amendments to the Higher Education Act currently envisage institutional accreditation,
an independent accreditation body, strengthened internal quality assurance, and
profiling of either academic or profession-oriented study programmes. The
systematic use of the HEInnovate tool and methodology for supporting
institutional change conducive to this are currently being investigated. The
proportion of performance-based funding for higher education institutions will
reach 24 % in 2015 and quality criteria are being improved. EU-supported
projects contribute to improving quality assurance and to gathering employers'
assessments on graduates' preparedness for the labour market. It is hoped that
specific profiles for study programmes will motivate the creation of more
professional-oriented bachelor programmes that could contribute to supporting
the transition from higher education to the labour market. Such a development
could also contribute to increasing the tertiary attainment rate and enable a
more efficient use of scarce resources at the level of higher education.
Vocational
Education and Training
Vocational education and training 
programmes do not appear to be fully providing the skills demanded by the
market, largely because there is no system to correctly identify labour-market
needs ([34]). The VET system is largely school-based, with upper secondary
students' participation significantly above the EU average (73.1 % compared to
50.1 % in 2012). While the employment rate of recent upper secondary graduates
is above the EU average (75.4 % compared to 69.4 %), skills mismatches have grown
significantly, mainly in particular regions. Binding rules for work-based
training, as well as assessment standards to secure transferable skills and to
strengthen interaction with private employers, should be a first step to
improving vocational education and training programmes. Work towards revising
the school funding system is planned, among others measures, to better ensure
the labour-market relevance of programmes.
The quality and transparency of public
institutions in the Czech Republic remain a barrier to the country's growth
performance, despite some recent reform efforts in this area. The Czech Republic continues to score below the EU average on
indicators of the quality of public institutions. The Czech Republic scores
below the EU average on five of the six dimensions of the World Bank's
Worldwide Governance Indicators (2014) ([35]), with the seventh lowest score on 'control of corruption'. The
World Economic Forum's Global Competitiveness Report (2014-15) ([36]) also highlights the corruption problem. The report states that
although the Czech Republic improved its ranking on the 'quality of institutions'
indicators, this improvement comes from a very low level in some sub-indicators
and "major concerns remain about corruption and undue influence" with
public trust in politicians ranking "extremely low". Inefficiencies
in public administration impinge on the country's growth performance as they
directly affect allocation of public funds and worsen the business environment.

Efforts to tackle the problem of
corruption in recent years have met with serious delays. The prevention and prosecution of corruption and conflicts of
interests remain a prominent issue in the public perception. Since 1999, the
Czech Republic has issued five anti-corruption action plans, the most recent
one in November 2014.  The new action plan aims to identify the risk areas
within government institutions and strengthen transparency and relevant control
mechanisms. However, many measures under former action plans have not been
followed through and have been carried forward without any significant
advancement. This is the case for a law on protecting whistle-blowers, a law on
financing of political parties, an amendment to the law on free access to
information, a new policy on the management of state-owned enterprises and a
law on public prosecution, while a law on conflicts of interest is still
pending adoption. 
 Graph 2.3.1:   Worldwide governance indicators (2013) 
 (1) Each indicator ranges between -2.5 (weak) to 2.5 (strong). EU figures are calculated as simple averages of Member State results. (2) Political stability and absence of violence/terrorism Source: World Bank 
In adopting the Civil Service Act, the
Czech Republic has started to address problems of efficiency and stability of
public administration but a number of elements are still lacking. The Civil Service Act entered into force on 1 January 2015 and
provides a basic legal framework for the civil service at national level by
defining its general structure and certain rules for its functioning. However,
key elements governing remuneration, entry into service, and rules for
co-operation between civil servants and politicians need to be set out in
implementing regulations and decrees. The Czech Government has committed to
ensure their entry into force by 1 July 2015, although they have still to be
published. 
Public procurement has been the focus of
policy initiatives but concerns about transparency remain. Use of non-transparent procedures (negotiated procedures without
publication of a contract notice) is the highest in the EU ([37]). Although compulsory on-line publication of tender documentation
introduced in the 2012 reform of the Public Procurement Act should have
increased transparency, the penalty for non-compliance  (a financial fine
imposed by the Review Body), which moreover requires an interested party to
make a complaint, does not seem to discourage such practices. Furthermore, as
tender documentation has to be published by each contracting authority,
systematic monitoring is difficult to put in place. Publication of all public
contracts in a centralised register with adequate search tools could make more
efficient public control possible. Review procedures are subject to a long
decision-making process, although the Review Body has recruited additional
personnel in order to address this problem. 
Efficiency of public procurement is
hampered by insufficient attention to quality and frequent changes of the legal
framework. Technical specifications of public
tenders remain overly focused on lowest price as the main award criterion (in
82 % of cases compared to the EU average of 56 %) ([38]), primarily because of fear of complaints from failed bidders on
quality criteria. Insufficient attention to quality and efficiency
considerations can give rise to the risk of under-priced tenders that require
several contract modifications in order for the project to be finalised. The
high number of legislative amendments (22 since 2006) undermines the stability
of the public procurement framework. A technical amendment of the Public
Procurement Act aiming to correct major deficiencies ([39]) was approved by the Parliament and another reform transposing the
2014 Public Procurement Directive has been launched.
The provision of appropriate guidance
and supervision on public tenders to tendering institutions is still lacking. The Ministry of Regional Development has made efforts to disseminate
information and provide training, notably through an on-line forum and by
launching a series of seminars until the 'Academy of Public Investment' becomes
operational. Nevertheless, the training activities are infrequent and
non-systematic.
Although the management of EU funds
improved in 2014, irregularities still created obstacles, particularly in the
areas of public procurement and conflicts of interest. The measures of the 2012 action plan to strengthen the management
and control system for implementing structural funds are being implemented and
positive developments were observed in the functioning of the Czech audit
authority. Implementation of projects accelerated and a lower amount of funds
is expected to be de-committed in 2014 compared with 2013 (EUR 313 million in
2014, down from EUR 411 million in 2013(). The number of interrupted
operational programmes has also decreased, however some irregularities remain,
which may lead to renewed interruption of payments in 2015 and a need to apply
financial corrections. Irregularities were also still detected in the area of
public procurement procedures. The national law on conflicts of interest is not
sufficient and other legislation on this issue is under preparation (including
a new act on public procurement and an act on financial control), although
these will not enter into force this year. 
Business environment and consumer protection
Despite recent improvements, the efficiency
and effectiveness of the business environment still represent a challenge. This is due to a number of factors, such as excessive
administrative and tax compliance burdens on companies, infrastructural issues,
and underdeveloped links between industry and universities/research institutes
in order to ensure R&D commercialisation. All these issues reduce
competitiveness. This is also reflected in the Czech Republic's rankings in
various international classifications, even though there has been some
improvement over the past year. The 2015 World Bank Doing Business Report ranks
the Czech Republic in 44th place out of 189 countries, and 19th
among EU Member States, but notes an improvement in its 'distance to frontier'
score ([40]). The main
problems identified are in the areas of starting a business, dealing with
construction permits, getting an electricity connection, and paying taxes ([41]), with no improvement in the total time required to comply with
this last obligation. On the positive side, the Czech Republic performs
relatively well on registering property and on access to credit ([42]).  There has also been a notable improvement in the Czech
Republic's ranking in the Global Competitiveness Report 2014-2015, moving up
nine places to 37th place. 
 Graph 2.4.1:   Overall profile of the Czech Republic's business environment 
 (1) While 1 stands for the best EU performer, 0 for the worst. Source: European Commission, World Bank, World Economic Forum, Intrum Justitia, latest available 2013 or 2014 data 
Some positive developments in recent
years have contributed to strengthening the business environment. In particular, the new Civic Code and the Law on Trading Companies
in force since 2014 have made it easier to set up a company. The digitalisation
of processes related to start-up documentation and the operation of data boxes
have improved, and administrative barriers have been reduced. Work is ongoing
on aligning the dates of the entry into force of legislation affecting
companies. The law on investment companies and investment funds, in force since
1 January 2014, is also expected to encourage private investors to fund
companies in the coming years by facilitating an easier establishment of
investment funds ([43]).
Consumer legislation is not effectively
enforced, leading to market distortions and level playing field issues for
companies. The efficiency of public administration
remains limited in this respect. This is reflected in retailers' poor
assessment of public authorities' role in ensuring compliance with consumer
legislation and of the ease and cost of compliance with this legislation (6th
and 3rd third lowest in the EU, respectively) ([44]). The existing legislation lacks clarity as regards the power of the
Czech Trade Inspectorate to accept undertakings against companies that are in
infringement of consumer legislation and to take public enforcement measures on
unfair contract terms. 
Digital Economy
The Czech Republic performs well with
respect to most of the targets of the Digital Agenda for Europe, although there
are several areas in which it does not fully exploit its potential. This concerns mainly the use of electronic services in the
health-care sector and e-Government. In the area of connectivity, the Czech
Republic makes the least use of all EU countries of its mobile broadband
spectrum (67.8 %) ([45]). 4G mobile
broadband was available to only 12 % of the population in 2013, compared with
an EU average of 59 %. In the area of digital skills, only 19.1 % of Czech
computer users have skills above a basic level, in comparison with an EU
average of 25 %. 
E-Government is one of the most
prominent areas in which there is potential to exploit the declared
determination to improve the effectiveness of public spending. It is estimated that the public authorities could reduce costs by
15-20 % if they moved to e-Government ([46]). Use of e-Government services in the Czech Republic (13.7 %) is
far below the EU average of 33 %. On the supply side, the Czech Republic ranks
below the EU average for both the newly introduced user-centric e-Government
indicator (57 vs. 70 for 2012-13) and the transparent e-Government indicator
(29 vs. 49). The Czech Republic underperforms in the field of eHealth, too. In
particular, the use of medical data exchange and ePrescriptions is still below
the EU average. 
Reform of regulated professions 
The Czech Republic has one of the
highest numbers of regulated professions in the EU.
Opening of regulated professions can increase competition and reduce mark-ups,
thus improving the overall cost effectiveness of the business environment.
Based on domestic sources ([47]), the number
of regulated professions in the Czech Republic is currently more than twice the
EU average. This number has not been reduced since the beginning of 2014. The
sectors most affected by regulation are health/social services and business
services, with a 25 % and 17 % share, respectively, of the total number of
professions. Furthermore, the country ranks high on the 2013 OECD Product
Market Regulation index ([48]) for entry
regulations for the legal, accounting, engineering, and architecture
professions. 
There have been limited policy
initiatives in recent years to accelerate the reform of regulated professions. Reform was initiated in 2012 but has been delayed, with only around
50 professions having been opened up through non-legislative measures since
then. Progress has been slow so far and several steps outlined in the initial
reform agenda have been postponed. In April 2014, a public consultation on the
necessity of such regulations was launched and the responses are currently
being assessed. An economic study on the impact of deregulation was also
launched in 2014. On that basis, and in line with the agenda of the mutual evaluation
exercise initiated by the European Commission in 2013, the Czech authorities
are expected to adopt a National Action Plan in spring 2015, with specific
measures and actions to improve the regulatory framework for regulated
professions. Such a plan would allow authorities to focus on sectors where
restrictions are no longer justified or appear disproportionate.
Research & development (R&D)
Public and private R&D investment
has increased substantially in the Czech Republic in recent years and the country
is well placed to surpass its Europe 2020 target on public R&D ([49]).  R&D intensity ([50]) has increased since 2002, when it hit a record low of 1.1 %,
significantly below the EU average of 1.81 %. Since then, and particularly
following an increase in the allocation of EU structural funds to R&D
activities in 2007, the country has started to catch up on its R&D
investment lag. In 2013, R&D intensity in the Czech Republic rose to 1.9 %,
very close to the EU average of 2.0 %. Both private and public R&D investment
contributed to this improvement ([51]). Should the recent trend continue, the Czech Republic will reach a
total R&D intensity of 2.97 % ([52]) in 2020, in line with the overall EU target of 3 %. 
 Graph 2.4.2:   Public and private R&D investment in the Czech Republic and the EU (% of GDP) 
 Source: European Commissoin – Eurostat (2013 data) 
Despite the recent increase in R&D
investment, the Czech Republic continues to lag behind in terms of scientific
and technological results.  This can be seen in its
weak scientific excellence results, with only 5.6 % of Czech scientific
publications among the 10 % of publications most cited worldwide ([53]). This can also be seen in the indicators on technological results,
with OECD data showing that the country scores 0.7 patents under the Patent
Cooperation Treaty per billion GDP against an EU average of 3.9, i.e. less than
18 % of the EU average. 
 Graph 2.4.3:   Relationship between top-cited scientific publications and PCT patents 
 Source: European Commission, based on data from the OECD and Innovation Union scoreboard, 2014 
Scientific and technological results remain
weak and point to a need to continue the modernisation and reform process of
the Czech research and innovation system. The
current reform process is characterised by the rationalisation and
concentration of R&D funding institutions and the creation of specialised
research and technological agencies. This process still suffers from strong
institutional inertia in, for example, the allocation of institutional funding.
Reforms in the allocation of funding across research institutions, as well as
in governance within research institutions, could create incentives to
reallocate funding towards the best performing research groups. An interim
report was presented in November 2014 and a final proposal is expected by the
end of 2015, with introduction only planned for 2017. More generally, the
adoption of a more targeted approach could also be beneficial, especially as
regards the identification of research priorities (in line with the Smart
Specialisation Strategy that was presented in December 2014). Such
prioritisation would contribute to reaching a critical mass of scientific and
technological excellence and will foster the productive use of research results
in the economy. Although support schemes, such as the Competence Centres, have
been set up in order to establish long-term collaboration between research
institutions and the private sector, knowledge transfer and science-industry
links remain weak. According to Eurostat, only 3 % of business R&D
expenditure is directed to fund research in public research or higher education
institutions, compared to an EU average of 13.7 %.
Transport
Despite a recent increase in road
density ([54]),
relatively underdeveloped transport infrastructure and suboptimal functioning
of the transport markets continue to negatively affect the capacity and safety
of transport services in the Czech Republic.
Underperforming transport services also substantially increase export costs,
which are some 15 % higher than the OECD average ([55]). This is particularly detrimental to the overall competitiveness
of the Czech Republic, an export-oriented economy with a strong manufacturing
base. The rail network is in rather poor condition, making it a less attractive
alternative to road transport ([56]). Although certain railway connections have been opened to private
operators, competition is still low ([57]) due to various obstacles, including limited public tendering of
public-service contracts, technical and safety regulations, and operational
barriers ([58]). With
regards to the inland waterway network, there is insufficient preparation and
coordination of further investment in this area, including a proper
cost-benefit analysis. 
Challenges related to underdeveloped
transport infrastructure are not being addressed with an adequate level of
investment. Investment in this area has fallen
quite substantially in recent years (Graph 2.5.1). Total expenditure on transport
infrastructure decreased in 2013 for the sixth consecutive year and was at its
lowest since 2001, at just a third of the 2008 level. The most recent figures
suggest that investment in this area increased in 2014, with EU funds
representing the main source of funding, although there have been difficulties
in providing the necessary co-financing on the domestic side.  Transport
infrastructure investment is administered by the State Fund for Transport
Infrastructure and implemented by the Road and Motorway Directorate and the
Railway Infrastructure Administration.
 Graph 2.5.1:   Investment in selected activities (as a % GDP) 
 Source: European Commission - Eurostat 
Despite the lower level of funding
available for transport infrastructure investment in recent years, absorption
capacity has fallen. The realised expenditure of
the State Fund for Transport Infrastructure was 76 % of its budgeted
expenditure in 2013, according to its annual report. Under absorption of funds
reflects bottlenecks in a number of areas. The annual reports of the State Fund
for Transport Infrastructure and the Road and Motorways Directorate ([59]) highlight lengthy procedures for issuing building and land-use
permits, inefficiencies in public procurement procedures and delays related to
complaint procedures at the anti-monopoly office. Independent studies also
point to low transparency and politicisation of decision-making processes in
this area ([60]), while
non-compliance of the national legislative framework with the Environmental
Impact Assessment Directive can also act as a bottleneck. Irregularities in
public procurement procedures resulted in a suspension of payments from EU
funds in 2013. Inefficient management and a lack of stability in the
implementing institutions can also contribute, with frequent changes in
management still taking place. For example, the director of the Road and
Motorway Directorate changed several times during 2014 ([61]). 
Inefficiencies in the allocation of
funding for infrastructure investment also contribute to weak absorption
capacity. The State Fund for Transport
Infrastructure's medium-term budgetary planning remains linked to the national
budgetary process. Given that the medium-term outlook of the national budget is
not binding on future budgets, this leads to inadequate levels of
predictability for the funding of transport infrastructure investment.
According to the Ministry of Transport, this unpredictability can lead to
difficulties in preparing and implementing projects and reduces the overall
efficiency of expended funds ([62]). The
Ministry of Transport highlights the possibility of using alternative financing
sources, such as public-private partnerships, in order to increase the
predictability of funding.
Energy efficiency
Despite a slowly increasing trend in
energy efficiency ([63]), the
Czech Republic still has one of the highest energy and carbon intensities ([64]) in the EU. Although the recent decline
in energy intensity by 2 % per year over 2000-12 was supported by underlying
energy efficiency gains, the improvements recorded in industry (especially in
manufacturing) were to a large extent due to shifts towards less
energy-intensive sectors. 
 Graph 2.5.2:   Determinants of energy intensity in the Czech Republic 
 (1) The growth levels of GDP and energy consumption have been translated into the standard units required to calculate energy intensity level. Source: European Commission - Eurostat 
Energy intensity in the transport sector
has been on an increasing path despite a decline reported in 2012, but there is
further scope for energy savings in buildings. The
Czech Republic decided to exclude transport from measures that fall under the
Energy Efficiency Directive. Despite savings recorded in the energy consumption
of buildings over 2008-10 (some 13 Terra Joules (TJ) compared to a target of
4.9 TJ reported in the Second National Energy Efficiency Action Plan), there is
further scope to equip public buildings and private dwellings with the latest
energy efficiency technologies, also in view of achieving the national energy
efficiency target by 2020. Given the Czech Republic's high energy-intensity and
the high dependence on imports of oil products and gas (3.2 % and 1.8 % of GDP
in 2013, respectively), there are significant vulnerabilities to potential
failures in fossil fuel supply and price shocks. 
Domestic programmes aimed at increasing
energy efficiency are fragmented and overly cost-inefficient ([65]). Several projects promoting energy
efficiency are in place or are envisaged shortly. EU funds are the main source
of funding. There are several operational programmes for the 2014-20 ([66]) programming period, with a total budget for energy efficiency
measures of around EUR 2 billion (1.4 % of GDP), higher compared with the
previous period. Several projects ([67]) are also financed domestically, although with fewer resources
allocated. There is still a lack of coordination between these programmes.
Moreover, given the low income levels of many households and the low funding
rate of state subsidies under the domestic schemes, the schemes are still
unaffordable for many. The funding application process for private consumers is
cumbersome and there is currently no central information point for citizens.
Lengthy administrative procedures to obtain the required building permit are
another factor that causes delays in the implementation of projects that
support energy efficiency. At the same time, sufficient resources do not appear
to have been allocated to energy efficiency issues in the public administration
after the closure of the Czech Energy Agency in 2007.
Environment and resource efficiency
The Czech Republic continues to face
challenges in the areas of the environment and waste management. The current waste management situation is challenging with strong
emphasis on landfilling and incineration, and recycling is not sufficiently
promoted. The landfilling rate in the Czech Republic is 56.5 %, which is still
well above the EU average of 24 % ([68]). In line with the July 2014 amendment to the Waste Act,
landfilling of recyclable municipal waste is to be abolished by 2024. This
still implies, however, a risk of waste simply being moved to new incinerators,
as confirmed by the new Waste Management Plan. Given the highly industrialised
nature of the economy, the emissions of particulate matter and its precursors
are high, putting pressure on the environment and generating substantial health
costs in the country, with an estimated loss of 4.17 million working days per
year ([69]). 
Policies promoting renewable energies
have been severely curtailed as a result of potentially high costs ([70]). When introducing and implementing new
policies, there are lessons to be drawn from the implementation and monitoring
of the previous set-up so that any retroactive legislative changes do not
undermine investor confidence. Recent legislative amendments and planned
changes aim to improve the legal environment for supporting renewable energy
sources.
 Commitments || Summary assessment ([71]) 
 2014 Country-specific recommendations (CSRs) 
 CSR1: Following the correction of the excessive deficit, preserve a sound fiscal position in 2014. Significantly strengthen the budgetary strategy in 2015 to ensure that the medium-term objective is achieved and remain at the medium-term objective thereafter. Prioritise growth-enhancing expenditure to support the recovery and improve growth prospects. Adopt and implement measures to strengthen the fiscal framework, and in particular establish an independent fiscal institution to monitor fiscal policies, introduce fiscal rules for local and regional governments and improve coordination between all layers of government. || The Czech Republic has made some progress in addressing CSR 1 of the Council recommendation (this overall assessment of CSR 1 excludes an assessment of compliance with the Stability and Growth Pact). Some progress has been made in prioritising growth-enhancing expenditure to support the recovery and improve growth prospects. Public investment is expected to increase significantly in 2014 and 2015 as a result of a higher absorption of EU funds. Some progress has been made in the preparation for adoption and implementation of measures aimed at strengthening the fiscal framework. A comprehensive reform of the fiscal framework is expected to be adopted in 2015. 
 CSR2: Improve tax compliance with a particular focus on VAT and reduce the costs of collecting and paying taxes by simplifying the tax system and harmonising the tax bases for personal income tax and social and health contributions. Reduce the high level of taxation on labour, particularly for low-income earners. Shift taxation to areas less detrimental to growth, such as recurrent taxes on housing and environmental taxes. Further reduce discrepancies in the tax treatment of employees and the self-employed. || The Czech Republic has made limited progress in addressing CSR 2 of the Council recommendation: Some progress has been made in improving tax compliance with a particular focus on VAT. Several measures have been put in place in 2015 and others are in the pipeline for 2016. No progress has been made in reducing the costs of collecting and paying taxes. No progress has been made in shifting taxation to areas less detrimental to growth, such as recurrent taxes on housing and environmental taxes. Limited progress has been made in reducing the high level of taxation on labour, particularly for low-income earners and in further reducing discrepancies in the tax treatment of employees and the self-employed. 
 CSR3: Ensure the long-term sustainability of the public pension scheme, in particular by accelerating the increase of the statutory retirement age and then by linking it more clearly to changes in life expectancy. Promote the employability of older workers and review the pension indexation mechanism. Take measures to improve significantly the cost-effectiveness and governance of the healthcare sector, in particular for hospital care. || The Czech Republic has made limited progress in addressing CSR 3 of the Council recommendation: No progress has been made in accelerating the increase of the statutory retirement age and in reviewing the pension indexation mechanism. Some progress has been made in linking the statutory retirement age more clearly to changes in life expectancy. Some progress has been made in promoting the employability of older workers. Limited progress has been made in taking measures to improve significantly the cost-effectiveness and governance of the healthcare sector, in particular for hospital care. 
 CSR4: Strengthen the efficiency and effectiveness of the public employment service, in particular by setting up a performance measurement system. Increase participation of unemployed youth in individualised services. Increase considerably the availability of affordable and quality childcare facilities and services, with a focus on children up to three years old. || The Czech Republic has made some progress in addressing CSR 4 of the Council recommendation: Some progress has been made in strengthening the efficiency and effectiveness of the public employment service, with an increase in personnel capacity and funding for active labour-market policies; no progress has been made on setting up a performance measurement system. Some progress has been made on increasing participation of unemployed youth in individualised services, with positive steps taken under the Youth Guarantee in 2014. Some progress has been made on increasing considerably the availability of affordable and quality childcare facilities and services, with a focus on children up to three years old, through the adoption of the Act on Child Groups in 2014. 
 CSR5: Ensure that the accreditation, governance and financing of higher education contribute to improving its quality and labour market relevance. Accelerate the development and introduction of a new methodology for evaluating research and allocating funding in view of increasing the share of performance-based funding of research institutions. In compulsory education, make the teaching profession more attractive, implement a comprehensive evaluation framework and support schools and pupils with poor outcomes. Increase the inclusiveness of education, in particular by promoting the participation of socially disadvantaged and Roma children in particular in early childhood education. || The Czech Republic has made limited progress in addressing CSR 5 of the Council recommendation: Limited progress has been made in ensuring that the accreditation, governance and financing of higher education contribute to improving its quality and labour market relevance as the draft amendment to the Higher Education Act are still in the legislative process. Limited progress has been made in accelerating the development and introduction of a new methodology for evaluating research and allocating funding in view of increasing the share of performance-based funding of research institutions. Some progress has been made in making the teaching profession more attractive, including an increase in pay in 2014. Limited progress has been made in implementing a comprehensive evaluation framework and support schools and pupils with poor outcomes. Limited progress has been made in increasing the inclusiveness of education, in particular by promoting the participation of socially disadvantaged and Roma children in early childhood education, despite the governement's adoption of a comprehensive strategy for education. 
 CSR6: Accelerate the reform of regulated professions, focusing on the removal of unjustified and disproportionate requirements. Step up the efforts to improve energy efficiency in the economy. || The Czech Republic has made limited progress in addressing CSR 6 of the Council recommendation: Limited progress has been made in accelerating the reform of regulated professions, focusing on the removal of unjustified and disproportionate requirements. Some progress has been made in stepping up the efforts to improve energy efficiency in the economy. 
 CSR7: In 2014, adopt and implement a Civil Service Act that will ensure a stable, efficient and professional state administration service. Speed up and substantially reinforce the fight against corruption by implementing the remaining legislative measures provided for in the anti-corruption strategy for 2013-2014 and by developing plans for the next period. Further improve the management of EU funds by simplifying implementing structures, improving capacity and tackling conflicts of interest. Increase transparency of public procurement and improve the implementation of public tenders by providing appropriate guidance and supervision. || The Czech Republic has made limited progress in addressing CSR 7 of the Council recommendation: Some progress has been made in ensuring a stable, efficient and professional state administration service due to the adoption of the Civil Service Act, although key elements of this legislation still need to be elaborated. Limited progress has been made is speeding up and substantially reinforcing the fight against corruption, despite the adoption of a new action plan. Some progress has been made in further improving the management of EU funds but conflicts of interest remains unaddressed. No progress has been made in increasing transparency of public procurement Limited progress has been made in improving the implementation of public tenders by providing appropriate guidance and supervision. 
 Europe 2020 (national targets and progress) 
 Employment rate target: 75 % by 2020 || The employment rate continues to rise and reached 73.9% in the third quarter of 2014. 
 R&D target (public expenditure only): 1 % R&D intensity (overall) in 2013: 1.88 % of GDP || The Czech Republic is progressing towards the 1 % target: public R&D investment rose to 0.87 % in 2013, from just 0.53 % in 2007. It should be noted that this increase in public R&D investment has been largely driven by EU structural funding of R&D, which has grown significantly in the 2007-13 programming period. Based on recent trends, the Czech Republic is on track to surpassing this not-particularly-challenging target. 
 Greenhouse gas (GHG) emissions national target: +9 % (compared to 2005 emissions, Emissions Trading Scheme (ETS) emissions not covered by this national target) || According to the latest national projections and taking into account existing measures, non-ETS emissions will decrease by 7 % between 2005 and 2020. The target is therefore expected to be achieved with a margin of 16 pps.   
 2020 Renewable energy target: 13 % Share of renewable energy in all modes of transport: 10 % || With a 12.5% RES share in gross final energy consumption in 2013 (Eur’Observ'ER), the Czech Republic is on track to reaching the 2020 RES target of 13%. The share of renewables in all modes of transport peaked at 5.6 % in 2012 (Eurostat data). 
 National indicative energy efficiency target for 2020: CZ’s 2020 energy efficiency target is 39.6 Mtoe expressed in primary energy consumption (25.3 Mtoe expressed in final energy consumption) || Primary and final energy consumption were on a slightly decreasing trend in 2003-13, reaching 40.1 Mtoe (primary consumption) and 23.7 Mtoe (final consumption) in 2012. If this trend is maintained, CZ will be on track to meeting its EE target. Additional efforts are needed to successfully implement the foreseen savings programmes. 
 Early school leaving target: 5.5 % || While early school leaving remains low and was 5.4% in 2013, it is particularly high among Roma people, which calls for targeted measures. 
 Tertiary education target: 32 % || The tertiary attainment rate has increased to 26.7% in 2013, reflecting a sharp increase over recent years and calling for efforts to ensure quality and labour-market relevance. 
 Target on the reduction of population at risk of poverty or social exclusion in number of persons: Maintaining the number of persons at risk of poverty or social exclusion at the level of 2008 (15.3 % of the total population), with efforts to reduce it by 30 000. || The number of people at risk of poverty or social exclusion has decreased by 58 000 since 2008, reaching 1 508 000 in 2013. 
 Table AB.1:     Macroeconomic indicators   
 Source: European Commission 2015 winter forecast; Commission calculations 
 Table AB.2:     Financial market indicators 
 Source: IMF (financial soundness indicators); European Commission (long-term interest rates); World Bank (gross external debt); ECB (all other indicators). 
 Table AB.3:     Taxation indicators 
 Source: European Commission 
 Table AB.4:     Labour market and social indicators 
 Source: European Commission (EU Labour Force Survey and European National Accounts) 
 Table AB.5:     Expenditure on social protection benefits (% of GDP) 
 Source:  For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 
 Table AB.6:     Product market performance and policy indicators 
 Source:  European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for the product market regulation indicators) 
 Table AB.7:     Green growth 
 Source: European Commission, unless indicated otherwise; European Commission calculation. 
([1])  http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/vat_gap2012.pdf
 
([2])  See the Tax Administration 2013 report:
http://www.oecd.org/tax/administration/tax-administration-series.htm
([3])  http://www.pwc.com/gx/en/paying-taxes/download.jhtml
([4])  The inactivity trap measures the part
of additional gross wage that is taxed away if an inactive person takes up a
job. 
([5])  The employment rate of the low-skilled
aged 15-64 reached 24.4 % in the third quarter of 2014 compared to the EU
average of 44.4 %. However, the low-skilled represent a small share of the
total work force in the Czech Republic (around 7 %). The low-income group also
includes part of medium-skilled workers.    
([6])  The S2 indicator shows the immediate
and permanent adjustment required to ensure that the deb-to-GDP ratio is not on
an ever-increasing path
([7])  2015 Ageing Report: Underlying Assumptions
and Projection Methodologies (see http://ec.europa.eu/economy_finance/publications/european_economy/2014/pdf/ee8_en.pdf).
([8])  The Czech Republic has 11.1 outpatient
consultations on average per year and per capita, compared with 6.8 in the 21
reporting Member States.
([9])  See for instance Garrido et al., 2011,
“The effects of gatekeeping: a systematic review of the literature”, which
shows a correlation of gatekeeping with lower utilisation of health services.
([10]) There are 524 one-day cases per 100 000
inhabitants in the Czech Republic, compared with an average of 5 302 for 14 EU
Member States (Eurostat, 2011). This possibly also reflects statistical issues,
as some one-day cases may be recorded as outpatient care in the Czech Republic.
([11]) In early 2015, the first phase of a
two-phase audit of procurement in public hospitals requested by the Commission
was completed and the main findings are being assessed. Information on past
audits is available upon request at http://ec.europa.eu/transparency/access_documents/index_en.htm.
([12]) A diagnosis-related groups (DRG) system,
i.e. one for classifying patient care by relating common characteristics such
as diagnosis, treatment, and age to an expected consumption of hospital
resources and length of stay. Its purpose is to provide a framework for
specifying case mix and to reduce hospital costs and reimbursements. It is the
cornerstone of the prospective payment system (http://www.ncbi.nlm.nih.gov/mesh?term=DRGs).
([13]) For more information, see the fiscal
governance database set up by the Commission (last data from 2013): http://ec.europa.eu/economy_finance/db_indicators/fiscal_governance/index_en.htm.
([14]) These refer to the Employment Policy
Strategy until 2020 and the "Activating Package". The strategy is
based on four priorities: supporting access to employment, in particular for
vulnerable groups; promoting gender equality in the labour market; promoting
adaptation of companies and employees to changing labour market conditions; and
improvement of PES. CZK 1.5 billion per year will be provided for the measures
under the Strategy, in addition to around CZK 70 billion planned under the
European Social Funds' Operational Programme on Employment. These amounts
represent a substantial increase in resources compared to the 2007-13 period.
([15]) Nearly 700 client-oriented employees
were recruited in 2014, alleviating a level of understaffing that was estimated
at about 20 % at the beginning of 2014 (see http://www.mpsv.cz/files/clanky/17668/cinnost_UP_2013.pdf).
([16]) Data from the Labour Office - state of
play on 31 October 2014.
([17]) People not in education, employment or training.
([18]) Barbara Pertold-Gebicka and Daniel
Husek (2014), "Female Labour force participation and childcare policies -
A study for the European Commission", draft, Prague.
([19]) 'Closing the Gender Gap. Act now', OECD
2012, p.53.
([20]) http://eige.europa.eu/content/gender-equality-index
([21]) It must be noted, however, that the
rate has increased from 4.9 % in 2011 to 5.4 % in 2013.
([22]) OECD Economic Survey: Czech Republic
(see: http://dx.doi.org/10.1787/eco_surveys-cze-2014-en).
([23]) Education and Training Monitor 2014 (http://ec.europa.eu/education/library/publications/monitor14_en.pdf).
([24]) Roma survey - Data in Focus: Education:
the situation of Roma in 11 EU Member States, European Union Agency for
Fundamental Rights, 2014.
([25]) EU-SILC 2012: early school leaving of
pupils with disabilities at 11.2 % compared with 4.4 % for pupils without
disabilities.
([26]) The employment rate for those who had
not completed upper secondary education or higher education was 40.4 % in the
Czech Republic in 2013, while the EU average was 51.4 %.
([27]) Roma survey - Data
in Focus: Education: the situation of Roma in 11 EU Member States, European
Union Agency for Fundamental Rights, 2014
([28]) In contrast, the proportion of Roma in
the overall population is estimated to be in the range of 1.4 to 2.8 % (Survey
by the Czech School Inspectorate: "Equal access to education in the Czech
Republic: situation and recommendations").
([29]) Funding for pupils placed in practical
schools (based on diagnosis of incapacity to attend mainstream education) is
much higher than funding for pupils placed in mainstream education. Some
stakeholders point to the fact that funding criteria, together with resistance
to closing schools, may encourage misdiagnosis of socially disadvantaged
children, in particular Roma, to keep practical schools open. 
([30]) While females are largely
over-represented in the teacher population with lower salaries than males, the
reverse is true for headmasters' positions (draft Country Background Report
prepared for the on-going OECD/EC School Resources Review).
([31]) 2013 International Computer and
Information Literacy Study (ICILS) carried out by the International Association
for the Evaluation of Educational Achievement (IEA): http://www.iea.nl/fileadmin/user_upload/Studies/ICILS_2013/ICILS_2013_release.pdfhttp://www.iea.nl/fileadmin/user_upload/Studies/ICILS_2013/ICILS_2013_release.pdf.
([32]) PIAAC 2013, http://skills.oecd.org/skillsoutlook.html.
([33]) See Education and Training Monitor 2014:
http://ec.europa.eu/education/tools/docs/2014/monitor2014-cz_en.pdf.
([34]) The analysis of the vocational
education and training system in the Czech Republic has been carried out within
the ESF Together Project (see http://www.nuv.cz/uploads/POSPOLU/Souhrnna_analyticka_studie_FIN.pdf).
([35]) http://info.worldbank.org/governance/wgi/index.aspx#home
([36]) http://www.weforum.org/reports/global-competitiveness-report-2014-2015
([37]) 15 % of all procedures in 2013, which
is three times above the EU average. In 40 % of cases no justification is given
for their use. See: http://www.zindex.cz/data/2014-08-28-Zakazky_bez_souteze.pdf
and http://ec.europa.eu/internal_market/scoreboard/performance_per_policy_area/public_procurement/index_en.htm
([38]) For 2013, see part 2.2.6. in http://www.portal-vz.cz/getmedia/8965ea38-8a96-490b-ad0f-ce4e1c0a32c9/Vyrocni-zprava-o-stavu-verejnych-zakazek-za-rok-2013.pdf.
([39]) Major elements of the technical
amendment include: extending the number of selection criteria beyond the lowest
price; allowing for tenders with a single bid; and acceleration of appeal
procedures and  limiting cost overruns. 
([40]) The distance to frontier score shows
how much the regulatory environment for entrepreneurs has changed over time in
absolute terms. 
([41]) Total tax time remained at 413 hours in
2014 for the Czech Republic, unchanged from 2013 levels, according to
PriceWaterHouseCoopers Paying Taxes 2014. 
([42]) In 2013 and 2014, SMEs in CZ reported
access to finance as their least pressing problem. See European
Commission 2014 SAFE survey (http://ec.europa.eu/enterprise/policies/finance/data/index_en.htm#h2-1).
([43]) The Ministry of Industry and Trade
estimated that there were 282 funds as of 15 December 2014 compared to 262
funds on 1 January 2014.
([44]) Flash Eurobarometer 396, “Retailers’
attitudes towards cross-border trade and consumer protection”, 2014.
([45]) All data in this and the next paragraph
are taken from the Digital Agenda Scoreboard unless otherwise stated (https://ec.europa.eu/digital-agenda/en/scoreboard).
([46]) "Public Services Online",
eGovernment Benchmark insight report for the European Commission, 2012
([47]) See the Regulated professions database
(http://ec.europa.eu/internal_market/qualifications/regprof/index.cfm?fuseaction=home.home). As far as
the database is concerned, each country is responsible for
updating information on its regulated professions, competent authorities and
statistics. Member States have the obligation to notify
to the Commission all the regulated professions by 18 January 2016, which is
why the number of regulated professions varies considerably and, in general, increases.
([48]) The OECD PMR index score for the Czech
Republic reached 2.36 as compared to an OECD average of 2.2 measured on a
sample of 40 countries in 2013 (oecd.org/eco/reform/Services-Indicators-2013.xlsx).
([49]) The Czech Republic set a target of 1 %
of public R&D investment by 2020 and is on track to surpass this. The
target is not a particularly challenging one, however. A more ambitious R&D
target would encompass both public and private investment.
([50]) The source of all R&D statistics is
Eurostat (http://ec.europa.eu/eurostat/web/science-technology-innovation/statistics-illustrated).
([51]) For the 2007-13 period, public R&D
investment increased from 0.5 % to 0.9 %, while private R&D increased from
0.8 % to 1.0 %. Both public and private R&D therefore outperformed the EU
average annual growth rate of 2.2 % over this period.
([52]) Based on the annual compound growth
rate in R&D investment for the 2007-13 period. This growth rate is then projected
for the 2013-20 period resulting in 2.97 % of GDP.
([53]) Source: Science Metrix / Scopus
(Elsevier).
([54]) "Infrastructure in the EU:
Developments and Impact on Growth"  December 2014, page 54.
([55]) Inland transportation and handling
costs in 2014 were estimated to be USD 210 (42 %) higher than in Germany
(deflated USD per container); see World Bank Doing Business 2015 (http://www.doingbusiness.org/data/exploreeconomies/czech-republic#trading-across-borders).
([56]) Use of rail passenger transport has
been steadily decreasing: from 8 million passenger-km in 1995 to 6.7 million passenger-km
in 2011, a 16 % decrease (ITF, 2011).
([57]) The market share of all but the
principal railway undertakings in passenger rail transport is at 5 % for
long distance and at 1 % for urban and suburban operation (RMMS, 2014, p. 69-70).
([58]) 2014 OECD
Economic survey of the Czech Republic.
([59]) See: http://www.sfdi.cz/poskytovani-informaci/poskytovani-informaci-dle-zakona-c-1061999-sb-/vyrocni-zpravy-sfdi-v-oblasti-poskytovani-informaci/
and http://www.rsd.cz/Organizace-RSD/Vyrocni-zpravy.
([60]) CEE Bankwatch Network (2014), " Governance,
transparency and public participation in transport infrastructure
projects".
([61]) http://www.rsd.cz/Informacni-servis
([62]) http://www.mdcr.cz/NR/rdonlyres/DB292074-62B4-4B09-9D43-9697A1A86FB0/0/B1300298_MINISTERSTVO_DOPRAVY_2014_2020_ENG05.pdf
([63]) The Czech Republic achieved its 2008-2010
savings target in the industrial and household sector while failing to achieve
its target in the transport sector. 
([64]) 355 kilogram of
oil equivalent (kgoe) / EUR 1000 compared to an EU average of 143 kgoe / EUR 1000
in 2012 (Eurostat). In the following analysis, energy
intensity is used as proxy for energy efficiency, under some caveats.  Energy
intensity is defined as the amount of energy needed to produce one unit of GDP.
This measure overcomes the effect of economic slowdowns (which automatically lead
to lower energy consumption) and allows a decoupling of energy consumption and
output growth.
([65]) For example, the last 'green savings'
programme saved 6.8PJ of energy with costs of around CZK 20 billion (EUR 725
million; 0.5 % GDP). Hence, every kWh saved cost 0.39 EUR of public funds
alone. Achieving the required savings (under the Energy Efficiency Directive)
with the previously achieved low savings per euro spent would require CZK 560
billion (EUR 20.3 billion; 13.6 % of GDP) of public funds alone. 
([66]) For example, OP Environment, OP
Enterprise and Innovation, Integrated regional OP and OP Prague, JESICCA. Priority
will be given to SMEs, although funding large-scale projects would generate
more savings. Energy infrastructure will also be newly co-funded by EU funds.
([67]) The EFEKT programme, New Green Savings
programme, Panel 2013+ programme. Their budget (i.e. EFEKT and Panel for 2015
and New Green programme overall) totals some EUR 72 million (CZK 2 billion ;
0.05 % of GDP).
([68]) http://ec.europa.eu/eurostat/web/environment/waste/database
([69]) Cost-benefit Analysis of Final Policy
Scenarios for the EU Clean Air Package, October 2014 (http://ec.europa.eu/environment/air/pdf/TSAP%20CBA.pdf).
([70]) Based on the findings of the National
Audit Office, the costs of supporting renewable energy will reach
CZK 1 trillion (roughly 25 % of GDP) by 2030 (see:  http://www.nku.cz/cz/media/podpora-zelene-energie-vyjde-ceskou-republiku-na-bilion-korun--dve-tretiny-teto-castky-odcerpaji-provozovatele-fotovoltaickych-elektraren-id7419/).
([71]) The following categories are used to
assess progress in implementing the 2014 CSRs of the Council Recommendation: No
progress: The Member State has neither announced nor adopted any measures to
address the CSR. This category also applies if a Member State has commissioned
a study group to evaluate possible measures. Limited progress: The Member State
has announced some measures to address the CSR, but these measures appear
insufficient and/or their adoption/implementation is at risk. Some progress:
The Member State has announced or adopted measures to address the CSR. These
measures are promising, but not all of them have been implemented yet and implementation
is not certain in all cases. Substantial progress: The Member State has adopted
measures, most of which have been implemented. These measures go a long way in
addressing the CSR. Fully addressed: The Member State has adopted and
implemented measures that address the CSR appropriately.